THE OTHER REFORM BREAKTHROUGH…. Under normal circumstances, a major overhaul of federal student loan programs would be a historic victory in its own right. The idea, decades in the making, was, after all, the centerpiece of President Obama’s education agenda, and appeared stalled in the Senate.
But two weeks ago, Democratic lawmakers agreed to include the student-loan overhaul in the health care reconciliation package. And with that, we’re getting two historic reform victories at the same time.
Ending one of the fiercest lobbying fights in Washington, Congress voted Thursday to force commercial banks out of the federal student loan market, cutting off billions of dollars in profits in a sweeping restructuring of financial-aid programs and redirecting most of the money to new education initiatives. […]
Since the bank-based loan program began in 1965, commercial banks like Sallie Mae and Nelnet have received guaranteed federal subsidies to lend money to students, with the government assuming nearly all the risk. Democrats have long denounced the program, saying it fattened the bottom line for banks at the expense of students and taxpayers.
“Why are we paying people to lend the government’s money and then the government guarantees the loan and the government takes back the loan?” said Representative George Miller, Democrat of California and chairman of the Education and Labor Committee.
What a good question. I’m glad we won’t have to ask it anymore.
Republicans, of course, were outraged about passage of the Student Aid and Fiscal Responsibility Act (SAFRA), largely because bank lobbyists told them to be. The same GOP lawmakers who demand cost savings, improved efficiency, and streamlined government programs, nevertheless fought like hell to kill a common-sense idea that achieves those very goals.
They lost. The result is a new law that provides “a huge infusion of money to the Pell grant program and … new help to lower-income graduates in getting out from under crushing student debt.” The savings to taxpayers are expected to total about $61 billion over 10 years.
Kevin Drum added, “This is, to coin a phrase, sort of a big effin deal. The student loan program has been a disgrace for a long time, essentially insuring a fat stream of profits to banks by allowing them to make risk-free loans thanks to guarantees from Uncle Sam. It was a pretty nice racket while it lasted.”
Update: An alert reader reminds me that CNN recently polled on student-loan reform, and found that 64% expressed support for the Democratic proposal. Even a slight majority of Republicans favored the idea.